<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission File Number: 0-8767
CALNETICS CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2303687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20401 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311
(Address of principle executive offices) (zip code)
(818) 886-9819
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None ---
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant is $9,748,000 as of August 1, 1996.
2,969,799
(number of shares of common stock outstanding as of August 1, 1996)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the Annual Meeting of Shareholders, to be
held November 8, 1996, are incorporated by reference in Part III hereof.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Calnetics Corporation, a California corporation ("Calnetics"), and its
wholly-owned subsidiaries, Manchester Plastics Co., Inc., a California
corporation ("Manchester"), Ny-Glass Plastics, Inc., a California corporation
("Ny-Glass"), and Agricultural Products, Inc., a California corporation ("API"),
are hereinafter referred to together as the "Company". Calnetics was
incorporated under the laws of the State of California on July 18, 1960. The
Company's headquarters are located in Chatsworth, California.
All of the Company's manufacturing operations are conducted by its
subsidiaries. Manchester manufactures proprietary items and custom products of
acrylic, polycarbonate and polystyrene plastic sheet that serve the building
materials and industrial plastics industries. Ny-Glass manufactures plastic
parts, specializing in injection molding. API, which was acquired as of April
30, 1994, manufactures plastic tubing, fittings, filters and accessories that
serve the agricultural irrigation industry.
Approximately 70% of the Company's net sales of $35,193,973 are of
proprietary products. The remaining portion of the Company's sales consist of
custom fabrication and production parts manufactured to each individual
customer's specifications. Such custom parts are produced for a wide variety of
industries including the electronics industry.
MERGERS AND ACQUISITIONS
In March 1988, Mr. Clinton G. Gerlach, either directly or through
Gerlach Holding Corporation, a Delaware corporation of which Mr. Gerlach was the
sole shareholder ("GHC"), acquired an aggregate of 682,004 shares of Calnetics'
Common Stock ("Common Stock"). GHC purchased 300,000 newly-issued shares
directly from Calnetics, and the remaining shares were purchased by Mr. Gerlach
and GHC from individual shareholders of Calnetics. In February 1992, GHC
acquired all of the Common Stock holdings owned by Mr. Larry Sacks, a former
officer and Director of Calnetics, consisting of 403,500 shares, resulting in an
aggregate ownership by GHC of 1,085,504 shares of Common Stock, representing
approximately 37% of the total shares outstanding as of June 30, 1996. As of
June 30, 1996, Mr. Gerlach owned 52% of the outstanding shares of GHC, with the
remaining 48% owned by Mr. Gerlach's son and daughter.
Since 1989, Calnetics has actively reviewed and pursued potential
merger and acquisition candidates with a goal of increasing revenues and
profitability. Calnetics intends to continue reviewing potential merger and
acquisition candidates in the future and to pursue mergers and acquisitions
where warranted. Acquisitions since the beginning of 1989 are described in the
following paragraphs.
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On September 18, 1989, Calnetics acquired all of the capital stock of
Manchester. Manchester, located in Chatsworth, California, now operates as a
wholly-owned subsidiary of Calnetics.
On June 3, 1992, Calnetics completed the cash acquisition of
substantially all of the assets of PSI, a manufacturer of plastic injection
molding components located in Corona, California. The acquisition was
accomplished through a subsidiary of the Company, Ny-Glass, which continued the
business of PSI under the Ny-Glass name in Corona, California. At the time of
the acquisition, Ny-Glass entered into a ten (10) year building lease with
respect to the premises formerly occupied by PSI. In September 1992, the
Ny-Glass division of the Company, located in Paramount, California, was moved to
Corona, California and consolidated with the Ny-Glass subsidiary.
As of April 30, 1994, Calnetics acquired all of the capital stock of
API for $4,402,144 by payment of $4,000,102 in cash obtained from long-term bank
financing, and $402,042 in unsecured notes payable to the former API
shareholders. API owns two plants, consisting of approximately 50,000 square
feet in Ontario, California and approximately 30,000 square feet in Winter
Haven, Florida. API's executive offices are located on site with the plant in
Ontario, California.
CUSTOMERS AND MARKETING
No customer accounted for ten (10%) percent or more of the Company's
net sales in the 1996 fiscal year, and export sales accounted for less than five
(5%) percent of net sales.
The Company's marketing efforts at all four facilities are conducted by
in-house personnel and a limited number of outside sales personnel and
independent manufacturers representatives.
RAW MATERIALS
The principal raw materials used by the Company with respect to the
manufacture of its products are resins for producing plastic parts. Based on
market and economic conditions, as of July 31, 1996, the Company was not
experiencing shortages in supply, other than nominal shortages of polycarbonate
resin at Manchester. However, there can be no assurances that additional
shortages will not result. All items, except polycarbonate resin, necessary for
the production of the Company's products are purchased from a variety of
suppliers.
PATENTS
The Company presently does not hold any patents, trademarks,
franchises, licenses, or concessions which are material to its operations.
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ENVIRONMENTAL MATTERS
The Company believes that its policy in controlling the use and
discharge of hazardous materials is in compliance with applicable local, state
and federal regulations. As of the date hereof, the Company has not received
notice from any governmental authority of any assertion of material
non-compliance with such laws.
SEASONALITY
The Company's business (excluding API) is not of a seasonal nature. The
Company is diversified across numerous industry lines and customers, and the
portion of its business conducted by the subsidiaries other than API has not
experienced any substantial seasonal variation to date. However, API's business
historically has been seasonal in nature, with demand for its irrigation
products being highest during the spring and early summer. In fiscal 1996, the
Company's revenue reflected this trend, with $16,398,938 of revenue in the first
half of the fiscal year (July - December) and $18,795,035 during the remainder
of the fiscal year.
INVENTORY
The Company maintains what it considers a normal supply of its raw
material resins ranging from 30 to 60 days' supply in inventory. These amounts
are not increased except in times of expected shortages.
The Company maintains an inventory of raw materials and finished goods
for sale in order to respond quickly to customer demand. (See Note 3 of Notes to
Consolidated Financial Statements.) While such raw materials and finished goods
on hand represent a significant commitment of the Company's working capital, the
Company believes that a rapid response to customer catalog orders is essential
and that its inventory practices are typical of the industry in which it
competes.
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BACKLOG
The Company's backlog of orders consists of written purchase orders and
telephone orders generally confirmed in writing or by substantially concurrent
delivery and acceptance of product. The Company estimates that approximately 90%
of its sales orders are written. The Company normally does not offer
cancellation rights and considers its backlog to be firm. The Company's backlog
at June 30, 1996 and at the end of the preceding fiscal year was as follows:
<TABLE>
<CAPTION>
JUNE 30
--------------------------------
1996 1995
------------ -----------
<S> <C> <C>
All Company Products $2,508,000 $2,290,000
</TABLE>
It is anticipated that approximately 95% of the backlog at June 30, 1996 will be
filled during the 1997 fiscal year.
GOVERNMENT CONTRACTS
The Company does not have any government contracts or any other
contracts which are subject to renegotiation of profits or termination at the
election of the government.
CURRENT BORROWING ARRANGEMENTS
Calnetics has a credit agreement for a $2,500,000 bank unsecured line
of credit, subject to certain conditions. As of June 30, 1996, no outstanding
balances existed on this bank credit line. The credit agreement expires December
31, 1996 and bears interest at the bank's reference rate, 8.25% at June 30,
1996. (See Note 4 to the Consolidated Financial Statements.)
To finance the acquisition of API, the Company entered into two
five-year collateralized bank term loans with two banks for a total of $4.5
million, with one such loan bearing interest at the bank's reference rate (8.25%
at June 30, 1996) plus 3/4%, and the other loan bearing interest at the bank's
prime rate (8.25% at June 30, 1996) plus 3/4%. As part of the API purchase
price, the Company also executed unsecured promissory notes totaling $402,042,
payable to the former API shareholders, with interest payable semi-annually at a
rate of 7.50% per annum and principal payable in four equal annual installments
beginning June 1996. (See Note 5 to the Consolidated Financial Statements.)
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As part of the acquisition of API, the Company assumed an industrial
revenue bond payable, which had an outstanding principal balance of $1,440,000
at June 30, 1996, principal due in annual sinking fund installments ranging from
$15,000 to $130,000 through December 2021, plus interest due monthly with an
adjustable interest rate, which was 4.7% at June 30, 1996. In addition, the
Company assumed mortgages payable to a bank, with an outstanding principal
balance of $274,687 at June 30, 1996, secured by the related building and land,
payable in monthly installments at an interest rate of three-quarter percent
(3/4%) over the bank's prime rate with a balloon payment of $201,415 due on
March 5, 2000. (See Note 5 to the Consolidated Financial Statements.)
COMPETITION
The Company encounters competition from many competitors, many of which
are larger and have greater financial resources. The number of businesses in the
plastics manufacturing industry in which the Company competes is impossible to
estimate, but it generally consists of numerous small and large corporations and
proprietorships. To the Company's knowledge, no single competitor is dominant.
Competition is principally based on price, product quality, customer
service and the ability to deliver products on schedule. The Company believes it
has developed a good following in the industries it serves including a favorable
reputation for product quality and prompt and reliable customer service.
RESEARCH AND DEVELOPMENT
The Company conducts routine product analysis to develop additional
catalog and custom products as part of its normal operations; however, the
expenditures required for such developments have not been and are not
anticipated to be material to the Company's operations.
EMPLOYEES
At June 30, 1996, the Company employed approximately 243 employees,
none of which are subject to a collective bargaining agreement. The Company
considers the relationship with its employees to be good and has not experienced
any work stoppage from any labor dispute.
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ITEM 2. PROPERTIES.
The Company operates from leased facilities in Chatsworth, California
and Corona, California. The Chatsworth facilities consist of a one-floor, 56,600
square foot building and the Corona facilities consist of a one-floor, 30,000
square foot building. At the Manchester facility in Chatsworth, the lease
expires on December 6, 1999. At the Ny-Glass facility in Corona, the lease
expires on May 31, 2002.
The Company also operates from two plants owned by API, consisting of
facilities of 50,000 square feet in Ontario, California and 30,000 square feet
in Winter Haven, Florida.
The Company believes the above facilities are in good repair, adequate
for the Company's current operations, and sufficient to accommodate up to a
twenty (20%) percent increase of present production levels, which would,
however, require additional equipment, and in certain cases, additional
semi-skilled labor.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently subject to any legal actions which are
expected to have a material adverse effect on its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The names, ages and positions of all the executive officers of the
Company are listed below, followed by a brief account of their business
experience during the past five years. Officers are normally appointed annually
by the Board of Directors at a meeting of the Directors immediately following
the Annual Meeting of Shareholders. There are no family relationships among
these officers or any arrangements or understandings between any officers and
any other person pursuant to which an officer was selected. None of these
officers has been involved in any court or administrative proceeding within the
past five years adversely reflecting on his or her ability or integrity.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------ --- -----------------------
<S> <C> <C> <C>
Clinton G. Gerlach 70 President, Chairman
of the Board and Chief Executive
Officer
Michael A. Hornak 53 Vice President
Steven L. Strawn 42 Vice President
Teresa S. Louie 42 Treasurer
Barbara Guyer 33 Secretary
Lon Schultz 62 President and Director of API
</TABLE>
Clinton G. Gerlach has served as the President, Chairman of the Board,
and Chief Executive Officer of Calnetics since March of 1988, the Chairman of
the Board and Director of Manchester since September 1989, Chairman of the
Board, Chief Executive Officer and Director of Ny-Glass since June 1992, and
Chairman of the Board and Director of API since June 1994. Mr. Gerlach was the
Chairman of the Board and Chief Executive Officer of Gerlach Industries, Inc.
from November 1983 to December 1986, and was the Chairman of the Board and Chief
Executive Officer of Tannetics, Inc. from August 1969 to November 1983. From
January 1987 to March 1988, Mr. Gerlach was self employed.
Michael A. Hornak has been a Vice President of Calnetics since 1974 and
a Director since 1984. Mr. Hornak has also been President of the Ny-Glass
Plastics division of the Company since 1985, President, Chief Financial Officer
and Director of Ny-Glass since June 1992, and was President of the Hydro Flight
division of the Company from 1983 to 1985.
Steven L. Strawn has been a Vice President of Calnetics since September
1989 and a Director since February 1992. Mr. Strawn has also been President and
Director of Manchester since 1989 and has held various other positions with its
predecessor, Manchester Products, from 1980 to 1989.
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Teresa S. Louie has been with the Company since August 1973 and was
appointed Treasurer of Calnetics in February 1992, and has held various offices
with Calnetics including Assistant Treasurer, Assistant Secretary and
Controller.
Barbara Guyer joined Manchester in April 1985, was appointed Treasurer
and Controller of Manchester in February 1992 and was appointed Secretary of
Calnetics in May 1996.
Lon Schultz is the founder, President and a Director of API. API was
formed in 1973 and Mr. Schultz has been the Chief Executive Officer of API since
the date of inception. Mr. Schultz has also been a Director of Story Plastics,
Inc. since 1975.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
(a) Market Information
Until June 19,1996, Calnetics Common Stock was traded on The Nasdaq
Smallcap Market, but began trading on The Nasdaq National Market on June 20,
1996. The stock is quoted in the National Daily Quotation Service under the
symbol CALN. The following table sets forth the high and low bid and asked
quotations for the periods indicated. Quotations represent prices between
dealers, without retail markups, markdowns or commissions and may not
necessarily represent actual transactions.
Common Stock price information (in dollars):
<TABLE>
<CAPTION>
BID ASKED
----------------------------------------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
Year Ended June 30, 1996
First Quarter 4 3-3/4 4-3/4 4-1/2
Second Quarter 3-1/4 3 4-1/4 3-3/4
Third Quarter 4-3/4 4-1/2 5-1/8 5-1/8
Fourth Quarter 9-1/2 4-7/8 10-1/4 5-1/4
Year Ended June 30, 1995
First Quarter 3-1/4 2-3/4 3-1/2 3
Second Quarter 4 2-3/4 4-1/2 3
Third Quarter 5-3/4 3-1/4 6-1/4 3-3/4
Fourth Quarter 5-1/4 3-1/2 5-3/4 4
</TABLE>
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(b) There were 310 shareholders of record as of August 15, 1996. Nasdaq National
Market maintenance standards require that Calnetics has at least 400
shareholders or 300 shareholders of round lots. Based solely upon the number of
sets of proxy materials requested by brokers, dealers and other entities for the
1995 Annual Meeting of Shareholders, Calnetics believes that the actual number
of beneficial owners of Calnetics Common Stock is in excess of 600.
(c) To date the Company has not paid any dividends, and the Company currently
does not intend to pay any dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected consolidated financial data of
the Company for each of the years in the five-year period ended June 30, 1996.
The selected consolidated financial data should be read in conjunction with (i)
the Company's Consolidated Financial Statements and the Notes thereto as set
forth in Item 14 below, and (ii) "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7 below.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
(IN DOLLARS)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales 35,193,973 29,172,106 17,996,617 16,564,448 13,570,6880
Net income 1,671,915 1,006,066 616,975 502,176 407,222
Earnings per 0.55 0.33 0.21 0.17 0.14
common
share
Capital 995,026 512,153 113,884 340,617 180,549
expenditures
Total assets 18,686,292 17,122,578 16,376,776 7,484,777 7,894,373
Long-term 4,740,820 5,551,284 6,284,524 --- 234,375
debt
Shareholders' 8,872,771 7,136,146 6,099,882 5,296,342 4,794,166
equity
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANCHESTER ACQUISITION
In September 1989, the Company acquired Manchester. The acquisition
expanded the Company's operations to include the manufacturing of acrylic,
polycarbonate and polystyrene plastic sheet that serves the building materials
and industrial plastics industries. Prior to the acquisition, the Company was
primarily engaged in the manufacturing of molded plastic components by
injection, transfer and compression processes.
PSI ACQUISITION
On June 3, 1992, the Company acquired for cash substantially all of the
assets of PSI, a manufacturer of plastic injection molding components located in
Corona, California. The acquisition was accomplished through a subsidiary of the
Company, Ny-Glass, which continued the business of PSI, under the Ny-Glass name
in Corona, California.
The cash purchase price paid for the assets acquired amounted to
$320,100, $250,000 of which was obtained from a short-term bank loan, utilizing
the Company's then existing credit line of $1,000,000.
Current assets acquired as part of the acquisition amounted to $354,182
and current liabilities assumed totaled $306,081.
API ACQUISITION
In fiscal 1994, the Company completed the acquisition of all of the
outstanding stock of API of Ontario, California from the API shareholders
effective as of April 30, 1994. The purchase price was $4,402,144, consisting of
cash of $4,000,102 and unsecured promissory notes payable to the former API
shareholders of $402,042. API, which was a closely held private company, is a
manufacturer of plastic water handling products, including tubing, filters and
drip system accessories with manufacturing plants in Ontario, California and
Winter Haven, Florida.
Net assets acquired totaled $3,528,341, resulting in recording of
goodwill of $873,803 which is being amortized on a straight-line basis over 20
years.
CHANGE IN INVENTORY PRICING
Effective July 1, 1994, the Company changed its method of pricing
finished goods inventories at Manchester from FIFO to LIFO. The change in method
was made to more properly match current expenses with revenues.
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At June 30, 1996 and 1995, if the FIFO method had been used to value
Manchester finished goods inventories, the stated value of inventories would
have been approximately $421,000 and $408,000 higher, respectively, and the
effect on 1996 and 1995 operations would have increased income before provision
for income taxes by $13,000 and $408,000, respectively, and net income by $7,000
and $230,000, respectively. (See Note 3 to the Consolidated Financial
Statements).
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
Net sales for the fiscal year ended June 30, 1996 increased 21% from
$29,172,106 to $35,193,973. The increase is attributed to broader customer
acceptance of the Company's products proportionally obtained by all three
subsidiaries.
Cost of sales, as a percentage of sales, amounted to 74.6% for the
twelve months ended June 30, 1996, as compared to 74.5% for the same period in
the prior year.
Selling, general and administrative expenses increased during the
twelve months ended June 30, 1996 to $5,627,299, as compared with $5,187,534 for
the same period in the prior fiscal year. The increase is attributed to the
increased sales volume in 1996 as compared with 1995.
Net income for the year ended June 30, 1996 amounted to $1,671,915
after provision for income taxes of $1,262,000, as compared with $1,006,066
after a provision for income taxes of $739,000 in the previous year. Income per
share increased from $0.33 per share in 1995 to $0.55 per share in 1996. The
increase in net income and income per share is primarily attributed to increased
sales volume at all three subsidiaries.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
Net sales for the fiscal year ended June 30, 1995 increased 62% over
the prior fiscal year from $17,996,617 to $29,172,106. The increase is
principally attributed to the Company's ownership of API. API operating results
were included for only two months in fiscal 1994 as compared to twelve months in
fiscal 1995.
Cost of sales, as a percentage of sales, decreased to 74.5% for the
twelve months ended June 30, 1995, as compared to 75.7% for the same period in
the prior year. The decrease is primarily attributed to the increased sales
volume in 1995 as compared with 1994.
Selling, general and administrative expenses increased during the
twelve months ended June 30, 1995 to $5,187,534, as compared with $3,253,056 for
the same period in the prior fiscal year. The increase is attributed to the
increased sales volume in 1995 as compared with 1994 in large part due to the
addition of API.
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Net income for the year ended June 30, 1995 amounted to $1,006,066
after provision for income taxes of $739,000, as compared with $616,975 after a
provision for income taxes of $522,000 in the previous year. Income per share
increased from $0.21 per share in 1994 to $0.33 per share in 1995. The increase
in net income and income per share is primarily attributed to increased sales
volume primarily from the API acquisition.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the primary source of liquidity for the Company was
cash generated from operations.
Working capital at June 30, 1996 increased to $7,926,721 as compared
with $7,234,385 at June 30, 1995, and current ratios were 2.6 and 2.7 at June
30, 1996 and 1995, respectively.
Expenditures for property and equipment were $995,026 for the fiscal
year ended June 30, 1996 as compared with $512,153 for the fiscal year ended
June 30, 1995. The increase for the fiscal year ended June 30, 1996 was
attributed to the purchase of approximately $500,000 of new injection molding
equipment for Ny-Glass. The Company has no immediate plans for any significant
capital expenditures in fiscal 1997. The Company believes that its available
funds and internally generated cash from operations will be sufficient to meet
its working capital needs in fiscal 1997. Certain loan agreements limit capital
expenditures by the Company to $1,000,000 in 1997 and thereafter.
The Company has a credit agreement with a bank under which the Company
may borrow up to $2,500,000 on an unsecured basis. No borrowings were made
against this credit line in fiscal 1996. The agreement expires on December 31,
1996 and bears interest at the bank's reference rate (8.25% at June 30, 1996).
Although the impact of inflation is difficult to accurately assess,
management of the Company does not believe that inflation has had a significant
impact on the Company's net sales and revenues, or on income from continuing
operations in the current period, or in the two preceding fiscal years.
As part of the Company's business strategy, the Company frequently
evaluates potential acquisitions of companies in the thermoplastics industry and
in other industries which management believes offer significant growth
opportunities. The Company has no present understanding or commitment with
respect to any acquisition.
The Company expects to finance any future acquisitions through either
cash flow from operations, borrowings under existing or future credit
facilities, the issuance of debt or equity securities or a combination of the
foregoing. The Company may also consider the issuance of long-term convertible
subordinated debentures or the issuance of convertible preferred stock to
enhance long-term liquidity.
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ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.
The financial statements are listed under Part IV, Item 14 in this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS OF THE COMPANY
The information under "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the 1996 Proxy Statement is
incorporated herein by this reference.
EXECUTIVE OFFICERS OF THE COMPANY
The "Executive Officers of the Company" are discussed under Part I,
Item 4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the captions "Information Regarding the Board of
Directors," "Committees" and "Executive Compensation" in the 1996 Proxy
Statement is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Ownership of Certain Beneficial
Owners and Management" in the 1996 Proxy Statement is incorporated herein by
this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under "Certain Transactions and Other Matters" in the
1996 Proxy Statement is incorporated herein by this reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
1. EXHIBITS
See Index to Exhibits set forth in this form 10-K following the
financial statements below.
<TABLE>
<CAPTION>
reference to
this Form 10-K
2. FINANCIAL STATEMENT SCHEDULES
<S> <C> <C>
Independent Auditors' Report 16
Consolidated Balance Sheets,
June 30, 1996 and 1995 17
Consolidated Statements of Income
and Retained Earnings for the Years
Ended June 30, 1996, 1995 and 1994 19
Consolidated Statements of Shareholders' Equity
for the Years Ended June 30, 1996, 1995 and 1994 20
Consolidated Statements of Cash Flows for
the Years Ended June 30, 1996, 1995 and 1994 21
Notes to Consolidated Financial
Statements 23
Schedule II - Valuation and Qualifying Accounts 33
</TABLE>
SCHEDULES OMITTED:
Schedules not listed above are omitted because of the absence of
conditions under which they are required or because the information is
included in the financial statement named above or in the notes
thereto.
3. REPORTS ON FORM 8-K
During the quarter ended June 30, 1996, the Company did not file a Form
8-K.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Shareholders of Calnetics Corporation:
We have audited the accompanying consolidated balance sheets of CALNETICS
CORPORATION (a California Corporation) and subsidiaries as of June 30, 1996 and
1995, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Calnetics Corporation and
subsidiaries as of June 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 24, 1996
Page 16
<PAGE> 17
CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,877,633 $ 1,580,974
Accounts receivable, net of allowances of
$316,000 and $263,000 in 1996 and 1995,
respectively 4,997,471 4,448,526
Inventories 5,470,710 4,962,037
Prepaid expenses 254,608 312,996
Deferred income taxes 342,000 272,000
----------- -----------
Total current assets 12,942,422 11,576,533
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 466,288 466,288
Buildings and leasehold improvements 2,269,525 2,204,992
Machinery and equipment 4,587,322 3,752,505
Furniture and fixtures 248,220 224,251
----------- -----------
7,571,355 6,648,036
Less--Accumulated depreciation and
amortization 3,399,998 2,776,164
----------- -----------
4,171,357 3,871,872
----------- -----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of
$331,638 and $259,938 in 1996 and 1995,
respectively 1,401,268 1,472,968
Deposits and other assets 171,245 201,205
----------- -----------
1,572,513 1,674,173
----------- -----------
$18,686,292 $17,122,578
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
Page 17
<PAGE> 18
CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 247,187 $ 338,000
Accounts payable 3,214,786 2,800,655
Accrued liabilities 756,050 707,503
Accrued compensation and benefits 411,657 437,797
Income taxes payable 386,021 58,193
----------- -----------
Total current liabilities 5,015,701 4,342,148
----------- -----------
LONG-TERM DEBT, net of current portion 4,740,820 5,551,284
----------- -----------
DEFERRED INCOME TAXES 57,000 93,000
----------- -----------
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock:
Authorized--2,000,000 shares
Issued and outstanding--0 shares - -
Common stock, no par value:
Authorized--20,000,000 shares
Issued and outstanding--2,959,799
and 2,914,799 shares in 1996
and 1995, respectively 2,462,345 2,397,635
Retained earnings 6,410,426 4,738,511
----------- -----------
Total shareholders' equity 8,872,771 7,136,146
----------- -----------
$18,686,292 $17,122,578
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
Page 18
<PAGE> 19
CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
NET SALES $35,193,973 $29,172,106 $17,996,617
COST OF SALES 26,252,121 21,739,246 13,628,257
----------- ----------- -----------
Gross profit 8,941,852 7,432,860 4,368,360
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,627,299 5,187,534 3,253,056
----------- ----------- -----------
Income from operations 3,314,553 2,245,326 1,115,304
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Gain on sale of property
and equipment 5,950 6,500 760
Interest and other income 29,803 27,345 65,127
Interest expense (416,391) (534,105) (42,216)
----------- ----------- -----------
(380,638) (500,260) 23,671
----------- ----------- -----------
Income before provision
for income taxes 2,933,915 1,745,066 1,138,975
PROVISION FOR INCOME TAXES 1,262,000 739,000 522,000
----------- ----------- -----------
Net income $ 1,671,915 $ 1,006,066 $ 616,975
=========== =========== ===========
Earnings per common share and
common share equivalent $ .55 $ .33 $ .21
=========== =========== ===========
Weighted average number of shares
outstanding 3,057,984 3,030,283 2,921,854
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 19
<PAGE> 20
CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock
----------------------- Total
Shares Retained Shareholders'
Outstanding Amount Earnings Equity
<S> <C> <C> <C> <C>
BALANCE, June 30, 1993 2,793,799 $2,180,872 $3,115,470 $5,296,342
Net income - - 616,975 616,975
Exercise of stock options 90,000 81,565 - 81,565
Shares issued for services 10,000 20,000 - 20,000
Extension of stock option
term (Note 8) - 85,000 - 85,000
--------- ---------- ---------- ----------
BALANCE, June 30, 1994 2,893,799 2,367,437 3,732,445 6,099,882
Net income - - 1,006,066 1,006,066
Exercise of stock options 21,000 30,198 - 30,198
--------- ---------- ---------- ----------
BALANCE, June 30, 1995 2,914,799 2,397,635 4,738,511 7,136,146
Net income - - 1,671,915 1,671,915
Exercise of stock options 45,000 64,710 - 64,710
--------- ---------- ---------- ----------
BALANCE, June 30, 1996 2,959,799 $2,462,345 $6,410,426 $8,872,771
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 20
<PAGE> 21
CALNETICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,671,915 $1,006,066 $ 616,975
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 758,591 704,497 444,833
Provision for doubtful accounts 98,338 93,531 52,521
Gain on sale of property,
plant and equipment (5,950) (6,500) (760)
Provision (benefit) for deferred
income taxes (106,000) (64,000) 24,000
Common stock issued for services - - 20,000
Extension of stock option term - - 85,000
Change in operating assets and
liabilities, net of effects
from acquisitions:
Decrease (increase) in:
Accounts receivable (647,283) (287,260) 589,945
Inventories (508,673) (785,506) (28,860)
Prepaid expenses 58,388 (164,599) 75,472
Deposits and other assets 29,960 (26,429) (66,232)
Increase (decrease) in:
Accounts payable 414,131 839,630 (656,529)
Accrued liabilities and
compensation and benefits 22,407 (84,661) 518,890
Income taxes payable 327,828 (137,773) 178,000
---------- ---------- -----------
Net cash provided by
operating activities 2,113,652 1,086,996 1,853,255
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property,
plant and equipment 14,600 6,500 4,000
Purchases of property, plant and
equipment (995,026) (512,153) (113,884)
Cash used in acquisitions - - (4,000,102)
---------- ---------- -----------
Net cash used in investing
activities (980,426) (505,653) (4,109,986)
---------- ---------- -----------
</TABLE>
Page 21
<PAGE> 22
- 2 -
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under line of
credit agreement $ - $ - $ (100,000)
Proceeds from long-term debt - - 4,500,000
Repayments of long-term debt (901,277) (883,658) (897,887)
Net proceeds from issuance of
common stock 64,710 30,198 81,565
---------- ---------- ----------
Net cash provided by
(used in) financing
activities (836,567) (853,460) 3,583,678
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 296,659 (272,117) 1,326,947
CASH AND CASH EQUIVALENTS,
beginning of year 1,580,974 1,853,091 342,723
CASH OF ACQUIRED ENTITY - - 183,421
---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
end of year $1,877,633 $1,580,974 $1,853,091
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 22
<PAGE> 23
CALNETICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. Basis of Presentation
Calnetics Corporation (the Company) is engaged in manufacturing operations
through three wholly owned subsidiaries:
Manchester Plastics, Co., Inc. (Manchester), located in Chatsworth,
California, primarily manufactures proprietary products consisting of
acrylic, polycarbonate and polystyrene plastic sheets for the building
material and industrial plastics industries.
Ny-Glass Plastics, Inc. (Ny-Glass), located in Corona, California,
manufactures custom plastic injection molding components for original
equipment manufacturers and high-quality, close-tolerance molded
plastic components for a wide variety of industries. Approximately
one-fifth of its production is proprietary, consisting of products for
the electronic, computer, automotive and other high-tech industries.
Agricultural Products, Inc. (API), located in Ontario, California and
Winter Haven, Florida, manufactures and distributes various irrigation
hoses, fittings and other products primarily for the agriculture
industry.
2. Acquisition
Effective April 30, 1994, the Company acquired all of the outstanding stock of
API for $4,402,144, which included a cash payment of $4,000,102 obtained from
long-term bank financing and $402,042 in notes payable to the former API
shareholders.
The API acquisition was accounted for using the purchase method of accounting,
and accordingly, the purchase price was allocated to assets acquired and
liabilities assumed based on their estimated fair values as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash $ 183,421
Accounts receivable 2,491,788
Inventories 1,532,340
Other current assets 124,529
Property, plant and equipment, net 3,273,197
Goodwill and noncurrent assets 897,812
Current liabilities (1,840,121)
Long-term debt (2,260,822)
-----------
$ 4,402,144
===========
</TABLE>
Page 23
<PAGE> 24
The results of operations of API from April 30, 1994 have been included in the
accompanying consolidated financial statements. The following summarized
unaudited pro forma financial information assumes the acquisition occurred on
July 1, 1993:
<TABLE>
<CAPTION>
Year Ended
June 30,
1994
----------
(Unaudited)
<S> <C> <C>
Net sales $26,849,000
===========
Net income $ 699,000
===========
Earnings per common share $ .24
===========
</TABLE>
3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its three wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Credit Risk
The Company's accounts receivable are unsecured and the Company is at
risk to the extent such amounts become uncollectible. Customers are
located primarily throughout the United States.
Revenue Recognition
Revenue on product sales is recognized at the time of shipment.
Page 24
<PAGE> 25
Inventories
Inventories include costs of materials, labor and manufacturing
overhead, are stated at the lower of cost or market using the first-in,
first-out (FIFO) and the last-in, first-out (LIFO) methods. The LIFO
method is used for the finished goods inventory at Manchester and
totals approximately $1,901,000. Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C> <C>
Raw materials $2,661,261 $2,402,121
Finished goods 2,809,449 2,559,916
---------- ----------
$5,470,710 $4,962,037
========== ==========
</TABLE>
Effective July 1, 1994, the Company changed its method of pricing
finished goods inventories at Manchester from FIFO to LIFO. The change
in method was made to more properly match current expenses with
revenues.
At June 30, 1996 and 1995, if the FIFO method had been used to value
Manchester finished goods inventories, the stated value of inventories
would have been approximately $421,000 and $408,000 higher,
respectively, and the effect on 1996 and 1995 operations would have
increased income before provision for income taxes by $13,000 and
$408,000, respectively, and net income by $7,000 and $230,000,
respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company follows
the policy of capitalizing expenditures which materially increase asset
lives and charging ordinary maintenance and repairs to operations as
incurred. Amounts expensed as maintenance and repairs were
approximately $336,000, $370,000 and $163,000 in 1996, 1995 and 1994,
respectively.
When assets are sold or disposed of, the cost and related depreciation
are removed from the accounts and any resulting gain or loss is
included in income.
Property, plant and equipment are depreciated and amortized using the
straight-line and accelerated methods over the following useful lives:
<TABLE>
<CAPTION>
<S> <C> <C>
Buildings and improvements 7 - 31.5 years
Leasehold improvements term of lease
Machinery and equipment 3 - 7 years
Furniture and fixtures 5 - 7 years
</TABLE>
Page 25
<PAGE> 26
Goodwill
Goodwill resulted from the purchase of Manchester during 1989 and the
purchase of API in 1994. It is being amortized on a straight-line basis
over 30 years and 20 years, respectively.
Statements of Cash Flows
For the purposes of the statements of cash flows, the Company considers
all highly liquid investments with an original maturity date of 90 days
or less to be cash and cash equivalents.
Cash paid for income taxes was approximately $1,041,000, $932,000 and
$330,000 in 1996, 1995 and 1994, respectively. Cash paid for interest
was approximately $445,000, $511,000 and $31,000 in 1996, 1995 and
1994, respectively.
Earnings Per Common Share
Earnings per common share and common share equivalent are based on the
weighted average number of shares of common stock and common stock
equivalents (dilutive stock options) outstanding during the related
periods. The weighted average number of common stock equivalent shares
includes shares issuable upon the assumed exercise of stock options,
less the number of shares assumed purchased with the proceeds available
from such exercise. Fully diluted net income per share does not differ
materially from net income per common share and common share
equivalent.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, and accounts payable
approximate fair value because of the short maturity of these financial
instruments. The carrying amounts of long-term debt approximate fair
value because either interest rates fluctuate based on market rates or
interest rates appear to approximate market rates for similar
instruments.
New Authoritative Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation," which applies the fair
value-based method of accounting for stock-based compensation plans. In
accordance with the recently issued standard, the Company expects to
continue to account for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Beginning for fiscal year end June 30, 1997, the
Company will adopt the appropriate disclosure requirements of SFAS No.
123.
Reclassifications
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 financial statement presentation.
Page 26
<PAGE> 27
4. Line of Credit
The Company has a $2,500,000 unsecured line of credit with a bank. At June 30,
1996, the entire amount was available under this credit arrangement, which
expires on December 31, 1996. Borrowings under this facility bear interest at
the bank's reference rate (8.25 percent at June 30, 1996). The line of credit
agreement includes certain restrictive covenants which are discussed in Note 5
below.
5. Long-Term Debt
At June 30, 1996 and 1995, long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ------------
<S> <C> <C> <C>
Term loans payable to banks, unsecured, interest at the banks'
reference rate (8.25 percent at June 30, 1996) plus .75 percent, due
in various monthly installments of principal and interest through
July 1, 1999, with balloon payments totaling $1,458,462 due on
August 1, 1999 $2,949,948 $3,683,316
Industrial revenue bond payable, principal due
in annual sinking fund installments ranging from $15,000 to $130,000
through December 2021, plus interest due monthly based on the
Issuer's Weekly Adjustable Interest Rates for Revenue Bonds (3.4
percent at June 30, 1996), secured by a standby letter of credit
issued by a bank with an annual fee of 1.25 percent 1,440,000 1,455,000
Loans payable to former API shareholders,
unsecured, interest payable semi-annually at
7.50 percent, principal payable in four equal
annual installments beginning June 1996 301,532 402,042
Mortgage payable to bank, secured by the related
building and land, principal payable in monthly installments of
$1,665 plus interest at the bank's prime rate (8.25 percent at June
30, 1996) plus .75 percent, with a balloon payment
of $201,415 due on March 5, 2000 274,687 294,663
Other 21,840 54,263
---------- ------------
4,988,007 5,889,284
Less--Current portion of long-term debt 247,187 338,000
---------- ------------
$4,740,820 $5,551,284
========== ==========
</TABLE>
Page 27
<PAGE> 28
The following is a schedule of future principal payments of long-term debt as of
June 30, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 $ 247,187
1998 799,779
1999 835,217
2000 1,750,824
2001 25,000
Thereafter 1,330,000
----------
$4,988,007
==========
</TABLE>
The line of credit agreement (see Note 4), term loans and notes payable include
certain restrictive financial and non-financial covenants, including certain
cash restrictions and limitations on payment of cash dividends and redemption of
stock. At June 30, 1996, the Company was in compliance with all bank covenants.
6. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109).
Under SFAS 109, deferred income tax assets or liabilities are computed based on
the temporary difference between the financial statement and income tax bases of
assets and liabilities using the enacted marginal income tax rate in effect for
the year in which the differences are expected to reverse. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period.
The components of the deferred income tax asset at June 30, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Allowance for bad debts $127,000 $106,000
Vacation accrual 56,000 56,000
State taxes 103,000 51,000
Inventory reserve 30,000 30,000
Warranty reserve 26,000 26,000
Other - 3,000
-------- --------
$342,000 $272,000
======== ========
</TABLE>
The primary component of the deferred income tax liability at June 30, 1996 and
1995 was accelerated tax depreciation.
Page 28
<PAGE> 29
The components of the provision (benefit) for income taxes for the years ended
June 30, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C> <C>
Current - Federal $1,048,000 $ 621,833 $392,437
- State 320,000 181,167 105,563
---------- ---------- --------
1,368,000 803,000 498,000
---------- ---------- --------
Deferred - Federal (90,000) (49,000) 19,000
- State (16,000) (15,000) 5,000
---------- ---------- --------
(106,000) (64,000) 24,000
---------- ---------- --------
Provision for income taxes $1,262,000 $739,000 $522,000
========== ======== ========
</TABLE>
The components of the provision (benefit) for deferred income taxes for the
years ended June 30, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ (21,000) $(23,000) $ 9,000
Depreciation (40,000) (4,000) 43,000
Accrued expenses and reserves - (27,000) (12,000)
State taxes (52,000) (12,000) (6,000)
Other 7,000 2,000 (10,000)
--------- -------- --------
$(106,000) $(64,000) $ 24,000
========= ======== ========
</TABLE>
A reconciliation of income taxes at the statutory federal income tax rate and
the provisions for income taxes for the years ended June 30, 1996, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- -------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory
federal rate $ 997,531 34.0% $593,322 34.0% $387,252 34.0%
State and local income
taxes, net of federal
income tax effect 180,084 6.1 106,449 6.1 69,477 6.1
Amortization of goodwill 35,033 1.2 35,033 2.0 30,310 2.7
Other items, net 49,352 1.7 4,196 0.2 34,961 3.0
---------- ---- -------- ---- -------- ----
$1,262,000 43.0% $739,000 42.3% $522,000 45.8%
========== ==== ======== ==== ======== ====
</TABLE>
Page 29
<PAGE> 30
7. Commitments
Employment Agreement
In June 1994, the Company entered into a three-year employment
agreement with a key employee. The agreement states that if the
employee dies or becomes disabled or is terminated for cause (as
defined in the agreement) during the employment period, the employee or
the employee's beneficiary will receive certain fixed payments as
defined in the agreement.
Non-Competition Agreement
In June 1994, the Company entered into a non-competition agreement with
the former shareholders of API. The agreement expires in June 1999.
Purchase Agreement
In June 1994, the Company entered into a four-year purchase agreement
with one of its vendors. The minimum purchase quantities are based on
historical purchase trends as defined in the agreement and the purchase
price of the parts will be the list price as set forth in the agreement
and as adjusted in the future based on the mutual agreement of the
parties.
Lease Commitments
The Company leases certain office and manufacturing facilities and
equipment under noncancelable operating leases which expire at various
dates through May 2002. The aggregate minimum future lease payments
under these leases at June 30, 1996 are approximately as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 $ 708,000
1998 705,000
1999 715,000
2000 388,000
2001 147,000
Thereafter 135,000
----------
$2,798,000
==========
</TABLE>
Rental expense charged to operations was approximately $700,000,
$641,000 and $595,000 for the years ended June 30, 1996, 1995 and 1994,
respectively.
Page 30
<PAGE> 31
8. Employee Stock Options
In 1988, the Company established an Employee Stock Option Plan under which
options to purchase a total of 275,000 shares of common stock may be granted to
certain employees as determined by the Company's Board of Directors. Options
granted under this plan vest in equal amounts on the first and second
anniversary dates of the granting of the options. The Company extended the
expiration date for one year on 1988 options to acquire 85,000 shares. This
extension resulted in additional compensation expense of $85,000 in 1994. At
June 30, 1996, options to acquire 79,000 shares are outstanding and exercisable
under this plan, expiring at various dates through July 24, 1997.
In 1993, the Company established the 1993 Stock Option Plan, which provides for
granting options to purchase up to 250,000 shares of the Company's common stock
to employees, officers, directors and consultants of the Company. The 1993 plan
is a non-statutory stock option plan and options to purchase 150,000 shares have
been granted and are outstanding under this plan at June 30, 1996. Options
granted to purchase 100,000 shares expire on March 1, 2003 and vest in three
equal amounts on March 1, 1995, 1996 and 1997. The remaining option granted to
purchase 50,000 shares (granted in fiscal 1995) expires on July 18, 2004 and
vests in three equal amounts on July 19, 1995, 1996 and 1997.
In fiscal 1995, the Board of Directors approved the establishment of the 1995
Stock Option Plan, which will provide for granting options to purchase up to
250,000 shares of the Company's common stock.
At June 30, 1996, 162,335 options were exercisable under all plans. All options
have been granted at prices equal to the fair market value of the common stock
at the grant date.
A summary of option activities for all plans is as follows:
<TABLE>
<CAPTION>
Number Option
of Shares Prices
--------- ---------------
<S> <C> <C>
Balance, June 30, 1994 245,000 $1.438 to 2.000
Granted 50,000 3.000
Exercised (21,000) 1.438
-------- ---------------
Balance, June 30, 1995 274,000 1.438 to 3.000
Exercised (45,000) 1.438
-------- ---------------
Balance, June 30, 1996 229,000 $1.438 to 3.000
======= ===============
</TABLE>
Page 31
<PAGE> 32
9. Employee Benefit Plans
API provides a profit-sharing plan and 401(k) plan for its employees. The Board
of Directors can authorize discretionary contributions with no required minimum
contribution. API's contribution to the profit-sharing plan for the periods
ended June 30, 1996 and 1995 was $120,000 for each period. There were no API
contributions to the 401(k) plan for the periods ended June 30, 1996 and 1995.
10. Unaudited Quarterly Results
Unaudited quarterly results of operations for each of the quarters in the three
years ended June 30, 1996 are presented below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended June 30,
1996
Net sales $8,772,000 $7,627,000 $9,090,000 $9,705,000
Gross profit 1,965,000 1,797,000 2,345,000 2,835,000
Net income 296,000 271,000 444,000 661,000
Earnings per share .10 .09 .14 .22
1995
Net sales $6,647,000 $6,275,000 $7,705,000 $8,545,000
Gross profit 1,590,000 1,579,000 1,992,000 2,272,000
Net income 170,000 179,000 280,000 377,000
Earnings per share .06 .06 .09 .12
1994
Net sales $3,938,000 $3,656,000 $4,100,000 $6,303,000
Gross profit 833,000 855,000 870,000 1,810,000
Net income 108,000 123,000 135,000 251,000
Earnings per share .04 .04 .05 .08
</TABLE>
Page 32
<PAGE> 33
SCHEDULE II
CALNETICS CORPORATION
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Balance Additions
at Charged Deductions Balance
Beginning to from at End of
of Period Expense Allowance Other Period
--------- ------- --------- ----- ------
Allowance for
doubtful accounts:
<S> <C> <C> <C> <C> <C>
Year ended
June 30, 1996 $263,015 $98,338 $45,353 $ - $316,000
======== ======= ======= ======= ========
Year ended
June 30, 1995 $197,525 $93,531 $28,041 $ - $263,015
======== ======= ======= ======= ========
Year ended
June 30, 1994 $141,399 $52,521 $76,395 $80,000(a) $197,525
======== ======= ======= ======= ========
</TABLE>
(a) Represents Agricultural Products, Inc.'s allowance for doubtful accounts
balance at the date of acquisition.
Page 33
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
3.1 Amended and Restated Articles of
Incorporation of Calnetics (Exhibit
3.1 to Form 10-K filed September
25, 1989).
3.2 Bylaws of Calnetics (Exhibit 1.2
to Form 10-K filed September 21,
1978).
3.3 Amendment to Bylaws of Calnetics
(Exhibit 3 to Form 8 filed September
28, 1989).
10.1 Lease dated November 22, 1989 between
Manchester and Tom Schneider and Arlene
Schneider and Amendment to said lease
dated December 5, 1989 (Exhibit 10.12
to Form 10-K dated June 30, 1991).
10.2 Lease dated June 2, 1992 by and between
Honey Protas and Ny-Glass (Exhibit 10.19
to Form 10-K dated June 30, 1992).
10.3 Addendum No. 1 to Lease dated June 2,
1992 (Exhibit 10.20 to Form 10-K
dated June 30, 1992).
10.4 Lease Guaranty Agreement entered into as
of June 2, 1992 by Calnetics (Exhibit 10.21
to Form 10-K dated June 30, 1992).
10.5 Memorandum of Lease with Right of First
Refusal and Option to Purchase dated
May 22, 1992 (Exhibit 10.22 to
Form 10-K dated June 30, 1992).
10.6 Side Letter Agreement re Standard
Industrial Commercial Single Tenant
Lease by and between Honey Protas as
lessor and Ny-Glass as lessee dated
May 22, 1992 (Exhibit 10.23 to Form
10-K dated June 30, 1992).
</TABLE>
Page 34
<PAGE> 35
<TABLE>
<CAPTION>
<S> <C>
10.7 Calnetics Corporation 1988 Employee
Stock Option Plan (Exhibit 10.25 to
Form 10-K dated June 30, 1993).
10.8 Calnetics Corporation 1993 Nonstatutory
Stock Option Plan (Exhibit 10.26 to
Form 10-K dated June 30, 1993).
10.9 Business Loan Agreement dated June 28,
1993 among Bank of America National
Trust and Savings Association, Calnetics,
Manchester and Ny-Glass (Exhibit 10.27 to
Form 10-K dated June 30, 1993).
10.10 First Amendment to Business Loan Agreement of
June 28, 1993 dated as of June 20, 1994 among
Bank of America National Trust and Savings
Association, Calnetics, Manchester and
Ny-Glass (Exhibit 10.17 to Form 10-K dated
June 30, 1994).
10.11 Stock Purchase Agreement among Calnetics and
the Selling Shareholders of API effective as
of April 30, 1994. (Exhibit 2 to Form 8-K
filed June 24, 1994).
10.12 Business Loan Agreement dated June 20, 1994
among The Bank of California, N.A., Calnetics,
Manchester, Ny-Glass and API (Exhibit 10.19 to
Form 10-K dated June 30, 1994).
10.13 Security Agreement (Receivables and Inventory)
dated June 20, 1994 between Calnetics and The
Bank of California, N.A. (Exhibit 10.20 to
Form 10-K dated June 30, 1994).
10.14 Security Agreement (Receivables and Inventory)
dated June 20, 1994 between Ny-Glass and The
Bank of California, N.A. (Exhibit 10.21 to Form
10-K dated June 30, 1994).
10.15 Security Agreement (Receivables and Inventory)
dated June 20, 1994 between Manchester and The
Bank of California, N.A. (Exhibit 10.22 to
Form 10-K dated June 30, 1994).
</TABLE>
Page 35
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C>
10.16 Security Agreement (Receivables and Inventory)
dated June 20, 1994 between API and The Bank
of California, N.A. (Exhibit 10.23 to Form 10-K
dated June 30, 1994).
10.17 Term Loan Note dated June 20, 1994 among
The Bank of California, N.A., Calnetics,
Manchester, Ny-Glass and API (Exhibit 10.24
to Form 10-K dated June 30, 1994).
10.18 Business Loan Agreement dated June 20, 1994
among Bank of America National Trust and
Savings Association, Calnetics, Manchester,
Ny-Glass and API (Exhibit 10.25 to Form 10-K
dated June 30, 1994).
10.19 Security Agreement dated June 20, 1994
between Calnetics and Bank of America
National Trust and Savings Association (Exhibit 10.26
to Form 10-K dated June 30, 1994).
10.20 Security Agreement dated June 20, 1994
between Ny-Glass and Bank of America
National Trust and Savings Association
(Exhibit 10.27 to Form 10-K dated June 30, 1994).
10.21 Security Agreement dated June 20, 1994
between Manchester and Bank of America
National Trust and Savings Association
(Exhibit 10.28 to Form 10-K dated June 30, 1994).
10.22 Security Agreement dated June 20, 1994
between API and Bank of America National
Trust and Savings Association (Exhibit 10.29
to Form 10-K dated June 30, 1994).
10.23 Noncompetition and Noninterference Agreement
dated June 20, 1994 among Calnetics, API
and Lon Schultz, individually and as trustee
of the Lon Schultz Charitable Remainder
Unitrust (Exhibit 10.31 to Form 10-K dated
June 30, 1994).
10.24 Employment Agreement dated June 20, 1994
between API and Lon Schultz, an individual
(Exhibit 10.32 to Form 10-K dated June 30, 1994).
</TABLE>
Page 36
<PAGE> 37
<TABLE>
<CAPTION>
<S> <C>
10.25 Parts Purchase and Supply Agreement dated
June 20, 1994 between API and Story Plastics,
Inc., a California corporation (Exhibit 10.33 to
Form 10-K dated June 30, 1994).
10.26 Loan Agreement dated December 31, 1991 between
California Statewide Communities Development
Authority and API (Exhibit 10.34 to Form 10-K
dated June 30, 1994).
10.27 Reimbursement Agreement dated December 1, 1991
between API and Union Bank (Exhibit 10.35 to
Form 10-K dated June 30, 1994).
10.28 Standby Reimbursement Agreement dated
December 1, 1991 between API and The Bank of
California, N.A. (Exhibit 10.36 to Form 10-K
dated June 30, 1994).
10.29 Sixth Amendment to the Standby Reimbursement
Agreement of December 1, 1991 dated July
1, 1994 (Exhibit 10.37 to Form 10-K dated
June 30, 1994).
10.30 Renewal/Consolidation Promissory Note and
Security Agreement dated March 13, 1992
between API as borrower and First Union
National Bank of Florida as lender (Exhibit
10.38 to Form 10-K dated June 30, 1994).
10.31 Amendment dated November 30, 1994 to Business
Loan Agreement dated June 20, 1994 among Bank
of America National Trust and Savings Association,
Calnetics, Manchester, Ny-Glass and API. (Exhibit
10.25 to Form 10-K dated June 30, 1994).
10.32 Mortgage Modification, Consolidation, Spreader,
and Extension Agreement dated March 31, 1995
among First Union National Bank of Florida,
API and Calnetics. (Exhibit 10.32 to Form 10-K
Dated June 30, 1995).
10.33 API Profit Sharing Plan Adoption Agreement
dated November 21, 1991 (Exhibit 10.39 to
Form 10-K dated June 30, 1994).
</TABLE>
Page 37
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C>
10.34 API 401(k) Plan Adoption Agreement effective
as of January 1, 1993 (Exhibit 10.40 to Form
10-K dated June 30, 1994).
10.35 Nonstatutory Stock Option Agreement between
Calnetics and Michael A. Hornak dated
February 28, 1994 (Exhibit 10.41 to Form
10-K dated June 30, 1994).
10.36 Nonstatutory Stock Option Agreement between
Calnetics and Steven L. Strawn dated
February 28, 1994 (Exhibit 10.42 to Form 10-K
dated June 30, 1994).
10.37 Nonstatutory Stock Option Agreement between
Calnetics and Lon Schultz dated July 18, 1994
(Exhibit 10.37 to Form 10-K dated June 30, 1995).
10.38* Amendment No.2 dated December 21, 1995 to
Business Loan Agreement dated June 20, 1994
among Bank of America National Trust and Savings
Association, Calnetics, Manchester, Ny-Glass and API.
(Exhibit 10.25 to Form 10-K dated June 30, 1994).
10.39* Amendment No.3 dated June 28, 1996 to
Business Loan Agreement dated June 20, 1994
among Bank of America National Trust and Savings
Association, Calnetics, Manchester, Ny-Glass and API.
(Exhibit 10.25 to Form 10-K dated June 30, 1994).
10.40* 1995 Employee Stock Option Plan Dated September
27, 1995
21* Subsidiaries of the Company (Exhibit 22 to Form 10-K
Dated June 30, 1994).
27* Financial Data Schedule
</TABLE>
- ------------------------------------------------------------------------------
* Filed herewith
Page 38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CALNETICS CORPORATION
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Teresa S. Louie Dated: September 3, 1996
----------------------------------------- -------------------
Teresa S. Louie
Treasurer
</TABLE>
Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Clinton G. Gerlach Dated: September 3, 1996
- --------------------------------------------- -------------------
Clinton G. Gerlach
Chairman of the Board, President
Director
/s/ Peter H. Griffith Dated: September 3, 1996
- ----------------------------------------------- -------------------
Peter H. Griffith
Director
/s/ Fred E. Edward Dated: September 3, 1996
- --------------------------------------------- -------------------
Fred E. Edward
Director
/s/ Michael A. Hornak Dated: September 3, 1996
- -------------------------------------------- -------------------
Michael A. Hornak
Vice President, Director
/s/ Steven L. Strawn Dated: September 3, 1996
- -------------------------------------------- -------------------
Steven L. Strawn
Vice President, Director
/s/ Teresa S. Louie Dated: September 3, 1996
- --------------------------------------------- -------------------
Teresa S. Louie
Treasurer (Principal Financial
and Accounting Officer)
</TABLE>
Page 39
<PAGE> 1
Exhibit 10.38
Bank of America Amendment to Documents
AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of December 21, 1995,
is among Bank of America National Trust and Savings Association (the "Bank")
and Calnetics Corporation ("Borrower 1"), Manchester Plastics Co., Inc.
("Borrower 2"), NY-Glass Plastics, Inc. ("Borrower 3") and Agricultural
Products, Inc. ("Borrower 4") (Borrower 1, Borrower 2, Borrower 3 and Borrower
4 are sometimes referred to collectively as the "Borrowers" and individually as
the "Borrower") .
RECITALS
A. The Bank and the Borrowers entered into a certain Business Loan
Agreement dated as of June 20, 1994, as previously amended (the "Agreement") .
B. The Bank and the Borrowers desire to further amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 In Paragraph 1A.1(a) of the Agreement, the amount "Two Million
Five Hundred Thousand dollars ($2,500,000)" is substituted for
the amount "Two Million Dollars ($2,000,000)".
2.2 In Paragraph 1A.2 of the Agreement, the date "December 31,
1996" is substituted for the date "December 30, 1995".
2.3 Paragraph 1A.3(a) of the Agreement is amended to read in its
entirety as follows:
"(a) The interest rate if the Bank's Reference Rate."
2.4 In Paragraph 2.1(a) of the Agreement, the amount "Two Hundred
Thousand Dollars ($200,000)" is substituted for the amount "One
Hundred Thirty Thousand dollars ($130,000)".
2.5 Paragraph 3.2 of the Agreement is amended to read in its
entirety as follows:
"3.2 RELEASE OF COLLATERAL. If (i) the Borrowers' total
liabilities to tangible net worth is less than 1.50:1.00, as
evidenced by financial statements of the Borrowers' delivered
to the Bank, (ii) there are no defaults hereunder, and (iii)
the Bank has received satisfactory evidence that The Bank of
California N.A. ("Bank Cal") has released its security interest
in all collateral of the Borrowers excluding only the
collateral of Borrower 4 securing Borrower 4's reimbursement
obligations in respect of a standby letter of credit issued by
Bank Cal and subject to Bank Cal's agreement that it may only
realize proceeds of receivables up to a maximum of Five Hundred
Thousand Dollars ($500,000), then the Bank will release the
collateral required under paragraph 3.1 of this Agreement
within a reasonable period following receipt of such financial
statements and evidence of the release of collateral."
- -------------------------------------------------------------------------------
AmendL (10/92) -1- 003091-10062
Page 40
<PAGE> 2
2.6 Paragraph 7.5 of the Agreement is amended to read in its entirety
as follows:
"7.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH. To maintain on a
consolidated basis, a ratio of total liabilities to tangible net
worth not exceeding 3.00:1.00, from and including the date hereof
to but excluding the date of any release of collateral under
Paragraph 3.2 of this Agreement, and not exceeding 2.00:1.00
thereafter. This ratio will be calculated on the last day of each
fiscal quarter of the Borrowers.
"Total liabilities" means the sum of current liabilities plus long
term liabilities."
2.7 Paragraph 7.6 of the Agreement is amended to read in its entirety
as follows:
"7.6 CASH FLOW RATIO. To maintain quarterly on a consolidated
basis, a cash flow of at least 1.25:1.00, as calculated on the
last day of each such quarter.
"Cash flow ratio" means the ratio of cash flow to the aggregate of
the current portion of long term debt. "Cash flow" is defined as
consolidated net income after taxes, plus depreciation and other
net non-cash charges plus the assurance of stock, less gain on
sale of assets, dividends, withdrawals, treasury stock purchases
and capital expenditures, the sum of which is divided by the
aggregate of the current portion of long term debt. This ratio
will be calculated at the end of each fiscal quarter, using fiscal
year-to-date results on an annualized basis. The current portion
of long term debt will be measured as of the last day of the
current quarter."
2.8 Paragraph 7.9 of the Agreement is amended to read in its entirety
as follows:
"7.9 CAPITAL EXPENDITURES. With respect to all Borrowers on an
aggregate basis, not to spend or incur obligations (excluding
capital leases) to acquire fixed or capital assets for more than
Seven Hundred Fifty Thousand Dollars ($750,000) in any single
fiscal year."
3. CONDITIONS. This Amendment will not be effective until the Bank has
received the following:
(a) A copy of this Amendment, duly executed by Borrower; and
(b) A written consent to the terms of this Amendment, duly
executed by The Bank of California, N.A.
4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
- -------------------------------------------------------------------------------
AmendL (10/92) -2- 003091-10062
Page 41
<PAGE> 3
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
National Trust and Savings Calnetics Corporation
Association
X /s/ Janet K. Trout X /s/ Steven L. Strawn
--------------------------------- ---------------------------------
By: Janet K. Trout, Vice President By: Steven L. Strawn, Vice President
X /s/ Clinton G. Geriach
---------------------------------
By: Clinton G. Geriach, Chairman of
the Board and President
Manchester Plastics Co., Inc.
X /s/ Steven L. Strawn
---------------------------------
By: Steven L. Strawn, President
X /s/ Clinton G. Geriach
---------------------------------
By: Clinton G. Geriach
Chairman of the Board
NY-Glass Plastics, Inc.
X /s/ Michael A. Hornak
---------------------------------
By: Michael A. Hornack, President
X /s/ Clinton G. Geriach
---------------------------------
By: Clinton G. Geriach
Chairman of the Board
Agricultural Products, Inc.
X /s/ Lon Schultz
---------------------------------
By: Lon Schultz, President
X /s/ Clinton G. Geriach
---------------------------------
By: Clinton G. Geriach
Chairman of the Board
- ------------------------------------------------------------------------------
AmendL (10/92) -3- 003091-10062
Page 42
<PAGE> 1
Exhibit 10.39
AMENDMENT NO.3 TO BUSINESS LOAN AGREEMENT
This Amendment No. 3 to Business Loan Agreement (this "Amendment") is
entered into as of June 28, 1996, is among Bank of America National Trust and
Savings Association (the "Bank"), and Calnetics Corporation ("Borrower 1"),
Manchester Plastics Co., Inc. ("Borrower 2"), NY-Glass Plastics, Inc.
("Borrower 3") and Agricultural Products, Inc. ("Borrower 4") (Borrower 1,
Borrower 2, Borrower 3 and Borrower 4 are sometimes referred to collectively
as, the "Borrowers" and, individually, as the "Borrower").
RECITALS
A. The Bank and the Borrowers are parties to that certain Business
Loan Agreement dated as of June 20, 1994, as modified by amendments dated as of
November 30, 1994, and December 21, 1995 (as amended, the "Loan Agreement").
B. The parties hereto now desire to amend the Loan Agreement on
the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meanings ascribed to them in the Loan Agreement.
2. Amendments. The Loan Agreement shall be amended as follows:
"2.1 Paragraph 7.9 is amended and restated in its entirety
to read as follows:
"7.9 Capital Expenditures. With respect to all
Borrowers on an aggregate basis, not to spend or incur obligations
(excluding capital leases) to acquire fixed or capital assets for more
than One Million Dollars ($1,000,000) in any single fiscal year."
3. Conditions. This Amendment will not be effective until the
Bank has received the following:
(a) A copy of this Amendment, duly executed by the
Borrowers; and
(b) A copy of a fully executed amendment between the
Borrowers and The Bank of California, N.A., amending the loan agreement
among such parties on substantially the same terms and conditions as
provided in this Amendment.
-1-
Page 43
<PAGE> 2
4. Representations and Warranties. Borrowers represent and warrant to
Bank that: (a) there is no event which is, or with notice or lapse of time or
both would be, a default under the Loan Agreement, (b) the representations and
warranties in the Loan Agreement are true as of the date of this Amendment as
if made on the date hereof, (c) this Amendment is within each Borrower's
powers, has been duly authorized, and does not conflict with any Borrower's
organizational papers, and (d) this Amendment does not conflict with any law,
agreement, or obligation by which any Borrower is bound.
5. Effect of Amendment. Except as provided in this Amendment, all of
the terms and conditions of the Loan Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
BANK OF AMERICA NATIONAL CALNETICS CORPORATION
TRUST AND SAVINGS ASSOCIATION
By: /s/ Janet K. Trout By: /s/ Steven L. Strawn
--------------------------- ---------------------------
Janet K. Trout Steven L. Strawn
Title: Vice President Title: Vice President
By: /s/ Clinton G. Gerlach
---------------------------
Clinton G. Gerlach
Title: Chairman of the Board
and President
MANCHESTER PLASTICS CO., INC.
By: /s/ Steven L. Strawn
---------------------------
Steven L. Strawn
Title: President
By: /s/ Clinton G. Gerlach
---------------------------
Clinton G. Gerlach
Title: Chairman of the Board
(Signatures continue)
-2-
Page 44
<PAGE> 3
NY-GLASS PLASTICS, INC.
By: /s/ Michael A. Hornak
---------------------------
Michael A. Hornak
Title: President
By: /s/ Clinton G. Gerlach
---------------------------
Clinton G. Gerlach
Title: Chairman of the Board
AGRICULTURAL PRODUCTS, INC.
By: /s/ Lon Schultz
---------------------------
Lon Schultz
Title: President
By: /s/ Clinton G. Gerlach
---------------------------
Clinton G. Gerlach
Title: Chairman of the Board
Certified to be a true and correct copy
By: /s/ Janet K. Trout
------------------------------------
Janet K. Trout, VP
-3-
Page 45
<PAGE> 1
Exhibit 10.40
PROPOSAL 2
APPROVAL OF 1995 EMPLOYEE STOCK OPTION PLAN
GENERAL
The Company's Board of Directors has adopted the 1995 Employee Stock
Option Plan (the "1995 Plan") effective as of June 14, 1995, subject to
approval by the Company's shareholders. Approval of the 1995 Plan requires the
affirmative vote of a majority of the outstanding shares of Common Stock of the
Company represented and voting in person or by proxy at the Annual Meeting or
any adjournments or postponements thereof. The Board of Directors unanimously
recommends that the shareholders vote FOR approval of the 1995 Plan.
The following is a summary of principal features of the 1995 Plan, and
is qualified in its entirety by reference to the full text of such plan:
PURPOSE AND ELIGIBILITY
The purpose of the 1995 Plan is to promote the interests of the
Company, its subsidiaries and its shareholders by using incentive stock options
(stock options representing the right to purchase Common Stock of the Company
that qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) to attract and retain key
personnel, to encourage and reward their contributions to the performance of
the Company, and to align their interests with the interests of the Company's
shareholders.
Any officer or employee of the Company is eligible to be granted
options under the 1995 Plan. There are approximately 220 such officers and
employees currently eligible to participate in the 1995 Plan.
9
Page 46
<PAGE> 2
ADMINISTRATION
The 1995 Plan shall be administered by a committee (the "Stock Option
Committee") appointed by the Board of Directors which shall consist of three
Board members, each of whom shall be "disinterested" within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended.
Subject to the provisions of the 1995 Plan, the Stock Option Committee shall
have the full and final power in its discretion to select the eligible persons
to whom options shall be granted under the 1995 Plan, to determine the terms of
such options, including the number of shares issued pursuant thereto, to
construe the 1995 Plan and any options thereunder, to determine all questions
arising thereunder, to adopt and amend rules to regulate the 1995 Plan and to
otherwise carry out the terms of the 1995 Plan.
PARTICIPATION BY EXECUTIVE OFFICERS AND OTHER EMPLOYEES
The determine of which eligible persons (including executive officers)
will receive options under the 1995 Plan and the number of shares underlying
such options will be made by the Stock Option Committee in its sole discretion.
Accordingly, future option grants to be received by executive officers and
other employees under the 1995 Plan are not currently determinable.
SECURITIES SUBJECT TO THE PLAN
No more than 250,000 shares of Common Stock may be issued upon exercise
of options granted under the 1995 Plan. The number of shares of Common Stock
available under the 1995 Plan in general, as well as the number of shares for
which issued or unissued options may be exercised and the exercise price per
share of options will be proportionately adjusted to reflect any increase or
decrease in the number of issued and outstanding shares of Common Stock
resulting from a subdivision or combination of shares, stock dividends, stock
splits, and similar capital stock transactions. The Company's Common Stock is
traded in the over-the-counter market and is quoted in the National Daily
Quotation Service, under the symbol "CALN." On August 25, 1995, the closing bid
for the Company's Common stock was $4-1/2. No options have been granted to date
under the 1995 Plan.
VESTING, EXERCISE AND TERM
Options granted under the 1995 Plan shall vest and may be exercised as
determined by the Stock Option Committee. The exercise price of any option
granted shall not be less than that amount necessary to enable the option to
qualify as an incentive stock option (generally, 100% of fair market value of
the Company's Common Stock on the date of grant). Options granted under the
1995 Plan may be exercised at any time after they vest and before their
expiration. The term of an option may be for up to ten years from the date the
option was granted, as determined by the Stock Option Committee, subject to
earlier termination due to termination of the employment of the option holder.
10
Page 47
<PAGE> 3
PLAN EFFECTIVENESS AND DURATION
The 1995 Plan became effective June 14, 1995, subject to shareholder
approval, and will continue (unless earlier terminated by the Board of
Directors or the Stock Option Committee) until its expiration on June 14, 2005.
Such expiration will not effect any option previously made or granted which is
then outstanding.
AMENDMENT AND TERMINATION
The Board of Directors or the Stock Option Committee may at any time
terminate or amend the 1995 Plan. No such termination will affect options
previously granted, nor may any amendment make any change in any option
previously granted which adversely affects the rights of any participant without
their consent, nor may any amendment be made without shareholder approval if
such amendment would materially increase the number of shares subject to the
1995 Plan, extend the final date on which options may be exercised, materially
modify employee eligibility for participation requirements, or materially
increase benefits which may accrue to participants under the 1995 Plan.
FEDERAL INCOME TAX CONSEQUENCES
Pursuant to the 1995 Plan, employees may be granted options which are
intended to qualify as incentive stock options under Section 422 of the Code.
In general, an optionee is not taxed and the Company is not entitled to a
deduction on the grant or exercise of an incentive stock option. However, if
the optionee sells the shares acquired upon exercise of an incentive stock
option at any time within (a) one year after the date of transfer of shares to
the optionee pursuant to exercise of such incentive stock option or (b) two
years after the date of grant of such incentive stock option, then the optionee
will recognize ordinary income in an amount equal to the excess, if any, of the
lesser of the sale price of the shares or the fair market value of the shares on
the date of exercise over the exercise price of such incentive stock option. In
such case, the Company will generally be entitled to a tax deduction in an
amount equal to the amount of ordinary income recognized by such optionee. The
amount by which the fair market value of the shares received upon exercise of
an incentive stock option exceeds the exercise price will be included as a
positive adjustment in the calculation of an optionee's "alternative minimum
taxable income" in the year of exercise.
11
Page 48
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY STATE OF
INCORPORATION
Agricultural Products, Inc. California
Manchester Plastics Co., Inc. California
NY-Glass Plastics, Inc. California
Page 49
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,877,633
<SECURITIES> 0
<RECEIVABLES> 5,313,471
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0
0
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</TABLE>
